How the Fed Just Saved You $25k on Your Refi

Following a two-day meeting in Washington, on January 27, 2016, the Federal Open Market Committee announced that they would leave interest rates unchanged, at least for now. If you were thinking of refinancing your home mortgage, that non-move might have saved you over $25,000. Here’s how:

If the Fed had raised rates, most analysts believe they would have raised them by a quarter percent. And while that doesn’t sound like a lot, a quarter percent on a $300,000 mortgage translates into an additional $43 a month, or $25,570 more in interest over the life of the loan, using current rates. If the Fed raised rates by half a percent, it would have been over $50,000.

The Fed’s non-move wasn’t a surprise, but it wasn’t guaranteed, either. In their statement, the Fed cited the resilience of the job market and noted strength in consumer spending and the housing sector. But they were disappointed in broader economic growth. So, for now, homeowners can still win big on refinancing, but it’s not clear for how long.

Why You Could Save More Than $25,000

With the Fed not acting, it meant mortgage interest rates stayed incredibly low. Borrowers could get a 30-year, fixed-rate mortgage at 3.88% APR. If you have a mortgage that hasn’t been refinanced in a few years, that means you could save a lot of money.

For instance, a $300,000 fixed-rate, 30-year mortgage at 3.88% APR results in a monthly payment of $1,412. Compare that to the same loan at 5% APR, with a monthly payment of $1,610 – you’d save almost $200 a month. Over the life of the loan, the interest on the 3.88% APR loan is a whopping $76,602.

Why Waiting Could Cost You

Just this past December, 2015, the Fed did raise interest rates by a quarter percent. And, based on the Fed’s plan on a gradual incline in rates, most analysts believed that they would raise rates four more times in 2016, beginning in March.

Now, many analysts say that four rate hikes seems like a long shot. But while the Fed was cautious this time round, they did not abandon or reverse their plan to gradually raise interest rates during 2016. So, really, anything could happen.

And even if the conservative analysts are correct and the Fed raises rates only once more, at a quarter percent, that’s a loss of over $25,000 on a $300,000 refinance. Two rate hikes costs over $50,000. Ouch.

Where to Find the Best Rates Now

If saving a ton of money before the Fed acts sounds good, there’s more good news, because finding the best mortgage interest rates is easy and free. Sites like LendingTree, one of the nation’s most respected loan comparison websites, help you shop rates to find the best mortgage for you.

It’s a painless, hassle-free way to refinance your home and start saving money while rates are still low. Try it today… before the Fed meets again.